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TTAB Rulings Held Preclusive in Federal Court

Trademark enthusiasts, hold onto your hats. The Trademark Trial and Appeals Board (TTAB) just got a bit of a promotion, compliments of the U.S. Supreme Court. On March 24, 2015, the Court released its decision in the long-awaited B&B Hardware v. Hargis Industries case, holding that TTAB findings of mark similarity can be preclusive in later federal proceedings as long as “the ordinary elements of issue preclusion are met.” This ruling stands in direct opposition to the majority of recent federal precedent, and may dramatically increase the import of TTAB rulings in the coming years. In other words, the TTAB just got a lot more powerful.

What is this case about, anyway?

This case initially arose when Hargis Industries applied to register the trademark “SEALTITE” in the construction industry in 1996. B&B Hardware opposed this application and simultaneously filed a trademark infringement lawsuit, asserting that B&B had previously registered the trademark “SEALTIGHT” in 1993. While B&B’s federal suit was pending the TTAB determined that Hargis’s proposed mark was confusingly similar to B&B’s mark and denied Hargis’s trademark application. As a result, B&B argued in its district court proceeding that the TTAB’s finding of mark similarity was entitled to preclusive effect in the court.

The Supreme Court agreed, finding that “[s]o long as the other ordinary elements of issue preclusion are met, when the usages adjudicated by the TTAB are materially the same as those before a district court, issue preclusion should apply.” If your Civ. Pro. is a bit rusty, the Restatement (Second) of Judgments describes the “ordinary elements of issue preclusion” as present “[w]hen [the same] issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment . . . .” So while the Court’s ruling does give the TTAB preclusive power regardless of its procedural variations from federal court, it only does so where, among other things, the issues and usages analyzed in each proceeding are “materially the same.”

In doing so, the Court rejected Hargis’s argument that preclusion is inappropriate because the TTAB is not an Article III court, noting that the TTAB should not be treated differently than other agencies that have long been afforded the power to issue preclusive decisions. The Court also rejected Hargis’s argument that preclusion should not lie because each court utilizes a different legal standard in its analysis, and because the TTAB analyzes marks as used in trademark applications whereas federal courts look to actual marketplace use. Instead, the Court found that the legal standard used in each forum is “essentially the same,” and that as long as the issue to be analyzed is also “materially the same,” or in other words, involves the same mark used in the same context, preclusion is appropriate. Additionally, the specific procedures and “lower stakes” that characterize the TTAB did not prevent preclusion, as the Court found no reason to doubt the quality and fairness of the Board’s proceedings and had no reason to believe that all TTAB proceedings would involve lower stakes than in federal court.

The Court, however, was careful to note that the issue preclusion standard referenced in this holding is a narrow one, and that a “great many” cases would not satisfy it. The Court also stated that if a “compelling showing of unfairness” at the TTAB is made, or if the proceeding is not “actually litigated,” the TTAB’s holding would not be preclusive in later proceedings. As such, parties showing slight differences in issues litigated, exclusion of important evidence in the TTAB, or that the matter was never “actually litigated” because of a default judgment may be able to circumvent an otherwise preclusive TTAB holding.

Why do we care?

The newfound significance that this ruling attaches to TTAB rulings will likely have long-lasting effects on trademark litigants, as well as parties seeking to litigate in quasi-judicial bodies more generally.

First, this ruling will reshape even the earliest stages of trademark disputes, as parties receiving an opposition to their mark application should think carefully before they respond, lest they risk receiving an unfavorable TTAB determination that has preclusive impact. Indeed, we may begin to see more and more parties opting for a default judgment at the TTAB, as this prevents the issue from being “actually litigated” in the TTAB and thus prevents issue preclusion in later proceedings. Still, most litigants will not find purposeful default an acceptable strategy, as the application would then be abandoned.

Further, as it relates to TTAB proceedings themselves, this ruling may undercut the Board’s reputation as a streamlined and cost-effective trademark dispute venue. Indeed, whereas parties could previously resolve trademark disputes quickly and cost-effectively through the TTAB, parties who receive an unfavorable TTAB ruling after B&B Hardware will essentially be required to spend additional time and money to appeal the decision, as “[t]he fact that the TTAB may have erred . . . does not prevent preclusion.” While this added cost may make some litigants less eager to bring TTAB proceedings, it may also give litigants with successful claims “more bang for their buck” by affording preclusive judgments in a low-cost venue.

Aside from its effects in the trademark world, it is important to note that B&B Hardware’s ruling may signal a sea-change in how courts deal with quasi-judicial bodies more generally. Rulings from patent authorities like the Patent Trial and Appeal Board (PTAB) may be found to create preclusive holdings in inter partes and post grant review proceedings. Further, the fact that issue preclusion lies for singular issues of fact or law suggests that this ruling could be particularly important for rulings on claim construction, level of skill in the art, and prior art determinations.

However, it is important not to overstate the applicability of this ruling. As the Court was careful to narrow its holding only to instances where “ordinary elements of preclusion” are met, litigants should be cognizant that only a narrow set of issues will actually be precluded in federal court, and as such should think carefully about how parties present issues in TTAB proceedings. For instance, the Court explicitly notes that where “the TTAB does not consider the marketplace usage of the parties’ marks, the TTAB’s decision should have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue[.]”

All in all, the ruling in B&B Hardware represents a departure from previous law, and will undoubtedly affect both the litigation and transactional strategies of parties seeking to preserve (or challenge) trademark, patent, or other legal rights through quasi-judicial decision-making bodies. Given its novel stance and broad implications, we think there will be much more where this came from. Stay tuned!

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